Investopedia's Forbes page brings the expertise of nearly 200 writers -- with specialties ranging from active trading to frugal living and everything in between -- to your fingertips. A division of ValueClick, Inc., Investopedia has been a leader in independent, unbiased financial education material since 1999. In addition to offering the most comprehensive financial dictionary on the web, visitors have access to articles, tutorials, FAQs, investment research, commentary, calculators, and two real-time investing simulators. More information is available on Investopedia's writers page.

Is Kickstarter A Viable Platform For Business Startups?

When the concept of crowdsourcing first came to prominence, it quickly became known as the purest embodiment of democracy in the business world. For the first time, consumers were empowered with influence and responsibility, as organizations sought to involve them in their core activities and decision-making processes. At the time, it seemed as though the relationship between business owners, creative types and consumers had been improved beyond all recognition.

Fast forward to 2012, and the initial optimism and hype surrounding crowdsourcing appears to have faded considerably. It may be argued that the prevailing economic condition is partially to blame for this, as businesses continue to adopt the crowdsourcing business model in order to access cheap and free labor. With so many people either out of work or underemployed, it cannot be denied that crowdsourcing may ultimately be responsible for the abolishment of numerous entry-level jobs throughout the U.S.

Is It a Reliable Platform? If this is not enough, there are further doubts that have been raised as to the viability of crowdsourcing as a fundraising and business tool. Much of this uncertainty surrounds the website Kickstarter, which in many ways remains the most renowned embodiment of the crowdsourcing philosophy. Essentially, Kickstarter helps aspiring entrepreneurs find success in a modern world by acting as a crowdfunding resource where creative minds and developers can pitch their ideas and request financial backing. The site has delivered mixed results for both investors and aspiring entrepreneurs alike since its inception.

The fact remains that Kickstarter is still a small funding pool. Many projects fail to meet their original funding requirements. Even though the site has raised more than $230 million since its introduction in 2009, and secured $8.6 million from 63,000 individual backers for game console Ouya, more often than not projects either fail to raise the requisite capital or run into operational issues once the fundraising has commenced. The latter is particularly concerning to those in charge of Kickstarter, especially with the organization set to expand into the U.K. market at the end of October.

The Risks Associated with Kickstarter Kickstarter is a unique and relatively unknown platform. It actively encourages investors to back creative individuals who would not necessarily receive funding from traditional venture capitalists. In order to help reassure investors, Kickstarter has taken the time to lay out a clearly defined set of guidelines and user policies. (Read more: 5 Essential Steps To Evaluating Your Business Idea)

The terms of use describe Kickstarter as being little more than a middleman between creative individuals and potential investors, which diminishes the site’s responsibility in the case of lost money or incomplete projects. This lack of accountability places the onus on individual participants to pursue an amicable resolution when a specific project fails.

While this perceived lack of protection for investors is bad enough in itself, it becomes an even more significant issue in the light of rogue activity by dishonest or bogus organizations. Earlier this year, Kickstarter announced that a listed project to develop a new game was in fact a hoax spearheaded by a bogus corporation. The game, introduced with the title “Mythic: The Story of Gods and Men,” was pitched using stolen online images and solicited more than $5,000 in pledges prior to been exposed as a fraud. No money changed hands, though the event is hardly likely to inspire confidence among genuine investors who seek tangible financial returns. (Read more: How Entrepreneurs Can Save On Taxes)

The Bottom Line Despite these inherent risks, there are a growing number of investors who can attest to the addictive nature of Kickstarter and to the thrill of funding independent ventures. However, Kickstarter remains a crowdfunding platform that is fraught with hidden perils and pitfalls. When you consider the fact that just a quarter of design- and technology-based Kickstarter projects deliver their goals on time, then it becomes clear that it may not be a viable platform for those who are in pursuit of reliable financial returns.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.